Charlottesville and Albemarle are locked in a battle over $2.6 million in school funding. Who will come to the breaking point first?

In November 2009, when the Albemarle County School Board sat at a table with Delegate Rob Bell and informally gave him the nod to ask the 2010 General Assembly to revise the state’s school funding formula, members knew Charlottesville officials would not be happy. Bell’s proposed amendment would subtract $2.6 million in school funding from Charlottesville’s budget, starting in fiscal 2012, and add $2.6 million to Albemarle’s. The move not only caught the city’s attention, but it has spurred a round of political posturing and awakened the sleeping giant that hovers over city-county financial relations—that is, the revenue sharing agreement.

The state’s school funding formula determines how much is doled out to each school division based on its wealth. The formula counts the Albemarle-Charlottesville revenue sharing agreement’s transfer of money towards Albemarle’s wealth, even though the money goes into Charlottesville’s coffers.

As Bell’s proposal awaits a decision from the General Assembly, the question becomes: Has it exacerbated city-county tensions to the point of gridlock, or will it force a meaningful, productive debate beneficial to both parties? At this stage, the answers vary.

County Supervisor Ken Boyd, a supporter of the proposal, sees it differently. “If this sort of rift that has come up drives us to that negotiating table, then I think it might be very positive,” he says.

With the state cutting funding to both school divisions this year, city and county officials might benefit from finding more ways to share services between school divisions. But it remains to be seen whether the city will grab an olive branch so soon after having its coffers threatened.

The back story

Since 2007, county officials have worked with Bell and Delegate David Toscano to brainstorm approaches to convince the state to factor the revenue sharing agreement into its school funding formula. Under that agreement, Charlottesville officials promised not to annex valuable county land that would have added to the city’s tax base and pressured the county’s rural areas. In return, Albemarle agreed to transfer to Charlottesville 10 cents for every dollar of real estate property tax that it collects each year, which has grown to a substantial sum. When the agreement was established in 1982, that sum totaled $1.3 million. In the current budget cycle, the transfer amounted to $18 million. Altogether, Charlottesville has received $160.8 million from Albemarle since the revenue sharing agreement was enacted.

The state’s school funding formula determines how much is doled out annually to each Virginia school division based on the wealth of a locality. As it stands now, the formula counts the revenue sharing agreement’s transfer of money towards Albemarle’s wealth, even though the money goes into Charlottesville’s coffers. Because the state credits the county with the money, the formula allocates less in school funding to Albemarle. In the current budget, the county would receive about $2.6 million more in state funding if the state counted the revenue sharing agreement in its formula.

Bell, whose 58th District includes only Albemarle, and Toscano, who represents both Charlottesville and about 18,000 voters in Albemarle, have sought different means to get that education money into the county’s budget. Bell has supported reducing Charlottesville’s state funding, while Toscano wants to reduce the school funding given to all other localities in Virginia. For the current General Assembly session, the County School Board and Board of Supervisors voted–4-3 and 4-2, respectively–to support Bell’s method.

Though the county has talked about changing the school funding formula to factor in the revenue sharing agreement since 2007, the issue has not ignited rhetorical fireworks until now. According to Bell, that’s because his latest proposal directly implicates city money, and only city money. “In this instance, there’s a winner and a loser,” he says.

And Bell is willing to accept the strain that his confrontational approach is having on city-county relations. “These are not two people we’re talking about,” he says. “It’s a business relationship. [City officials] certainly have the legal right at this point to keep revenue sharing, but it doesn’t mean it should be part of the [school funding formula].”

Albemarle’s case to the General Assembly is that changing the formula to reflect its available funds is an issue of basic fairness, not intended to undermine the legitimacy of the wider revenue sharing agreement.

“The fact that the city is going to be harmed by making it right for the county is unfortunate, but that’s not driving this,” Supervisor Boyd says. “It’s an area of principle and an inequitable circumstance that needs to be corrected.”

Fair vs. fair?

City officials have responded to the county’s amendment as one might expect: with anger and concern. They hired a lobbyist to fight the proposal in front of the General Assembly, passed a resolution formally opposing Bell’s measure, and Norris made known his willingness to peruse joint city-county contracts to see where the city could recoup the $2.6 million if Bell’s proposal passes.

If the city were to act on Norris’ threat, an ugly clash with the county might ensue. The county could then look for its own way to recoup, according to County School Board Chairman Ron Price.

“I don’t think the city wants to go there,” he says. “Who uses the city’s retail industry and restaurants? Do you really want to make Albemarle County citizens angry enough where they say, ‘If you want to play that game, then we may not want to use your services?’”

The situation could easily deteriorate into a tit-for-tat, Norris acknowledges, but the county has put the city in a position “where the only other option is to find that money elsewhere,” he says. “We’re not just going to stand by as upwards of $30 million over the next 10 years is taken out of our schools.”

The city’s counter to the county’s “make the formula fair” case is a fairness argument of its own. Virginia’s school funding formula was put in place in 1974 —eight years before the revenue sharing agreement was struck—yet there is no record of county officials in 1982 asking the state to change the formula to include the agreement. If the formula was so unfair, city officials contend, why was it not brought up in 1982?

Norris sees the county’s push for a change 28 years later as a product of its dire financial straits. If Albemarle’s real estate tax rate remains unchanged, the school division may have to structure a budget for fiscal 2011 that is roughly $13 million less than the current year, according to Price. Charlottesville is also facing school cuts, but to a lesser degree.

“I think there’s a lot of frustration on the part of the county that each year they have to cut a substantial check toward to the City of Charlottesville when they see the city in decent financial shape,” Norris says. “We’ve been very well managed fiscally. We’ve made good choices so we’re not in fiscal stress. And the county is in severe fiscal stress. It bothers them that they’re having to make major cuts in services and yet they’re still having to send this big check to the city every year.”

In addition, city officials argue that $2.6 million means much more to a school division with a proposed fiscal 2011 budget of $69.4 million and a student body of which 54.2 percent are eligible for free and reduced lunch, according to 2008 figures, than it does to a division with a proposed budget of $145.9 million and a student body that’s only 22.1 percent eligible for free and reduced lunch.

“The loss for the city is significantly more than the gain for Albemarle,” City School Board member Ned Michie says.

This is really about that

Is school consolidation a solution?

Delegate Rob Bell’s school funding amendment has incited city-county rancor, and it has also jostled officials to attention. That jostling, combined with state funding cuts that have imperiled both school budgets, has led officials to at least confront the grandest City-County cooperative idea of them all: consolidating the two school divisions into one.

The idea is not new, but with both localities feeling budgetary strain, at least some officials seem more open to it. Albemarle County School Board member Brian Wheeler, who has suggested the idea before, asserts that such a consolidation would save “tens of millions of dollars.

“It’s the biggest part of both localities’ budgets, and it’s the biggest duplication of effort,” Wheeler says.

In fact, Charlottesville devoted 32 percent of its fiscal 2010 budget to its schools—the city’s single largest expenditure—while Albemarle allocated 46 percent for its schools, by far its largest cost.

Like Wheeler, County Supervisor Ken Boyd sees the potential cost efficiencies in consolidating. “I certainly would encourage [debate on consolidation],” Boyd says. “We’ve got to start thinking about this as a community, not just the city versus the county.”

By combining school divisions, the city and county could share expenses for transportation and information technology and combine their two central offices. In addition, county schools have seen an increasing enrollment in recent years to the tune of a 5 percent rise since the fall of 2004, while city schools have declined 6.6 percent during that time.

Therefore, consolidation could lead to mutually beneficial solutions, as city school board member Ned Michie points out.

“[City] school buildings are underutilized, and [the county] has had to consider expanding or building more schools,” he says. “I think you ought to save some money there by finding efficiencies.”

Despite the potential benefits of combining school divisions, some officials are reluctant to embrace such a drastic change and question whether it will actually save money in the end.

“Anytime you talk about shipping kids to different schools, it’s a very divisive conversation,” Michie says.

The two divisions have different spending priorities. Charlottesville spent $10,010 per student in local funds in fiscal 2008, while Albemarle spent $8,425 per student, according to Virginia Department of Education figures. If the two merged, something would have to give. The county would have to spend more per student, or city students and teachers would have to adjust to larger class sizes.

“People in the city are very strongly in favor of their low [student-to-teacher] ratios,” Michie says.

Charlottesville Mayor Dave Norris isn’t convinced that school division consolidation is the right solution for saving money, “but I’m willing to have that discussion,” he says. Short of consolidation, Norris said he is open to finding city-county cost overlaps within schools.

However, with Bell’s proposal so directly aimed at city school coffers, Norris acknowledges how relations between the two localities are less than hunky-dory right now.

"This recent effort by the county School Board to pull money out of the city schools doesn’t send a strong signal to city school parents and officials that the county is looking out for the best interest of the city school system,” he says.—M.D.

Though the instigator of this school funding brouhaha was Bell’s proposal, the roots of the friction lie elsewhere: in the differing levels of budgetary scrutiny demanded by taxpayers; in the county’s relatively low tax rate; and in a Virginia system dating back more than 100 years that makes conditions ripe for city-county tension.

The differences in the city and county tax rates point to a contrast in priorities among the localities’ taxpayers. For the current fiscal year, the Board of Supervisors set the real estate tax rate at 74 cents per $100 of assessed value, while the City Council agreed on a rate of 95 cents per $100 of assessed value. In recent budget seasons, county taxpayers have pressured the school board to justify spending and to work toward cutting unnecessary spending. The city’s school board, meanwhile, has not faced nearly as much resistance; taxpayers are more willing to pay the higher tax rate to fund certain services.

That sentiment is further played out in the amounts the school divisions spend per student. Charlottesville schools spent $15,143 per student in fiscal 2008. Meanwhile, Albemarle schools spent $11,713 per student, according to Virginia Department of Education figures.

How then do the differing sentiments tie in with the debate surrounding Bell’s proposal? The economic climate has caused the state to cut funding for education, and county officials acknowledge that the cuts have compelled them to look for new revenue streams, all the while balancing the schools’ needs versus taxpayers’ spending sentiment. “The pressure is mounting to save more money, and the climate has become more dour,” says Price, who sent an unbalanced schools budget to the Supervisors last month.

With Bell’s proposal, city officials say the county is avoiding its own tough choices of possibly raising taxes or revising its land-use taxation program that gives tax relief to landowners and acts as a tool for limiting development in more rural areas. “I’m happy to look for ways Charlottesville and Albemarle can logically save money through more collaboration,” city school board member Michie says, “but the keys to the county’s financial straits are in its own hands, because it is a wealthy locality with a well-below-average tax rate.”

Price and at least one county supervisor agreed that raising taxes has to be seriously considered during this budget cycle. “If not adjusting the tax rate means we have to significantly reduce the educational experience we offer our students, we would have to look at it,” Supervisor Dennis Rooker says. “It’s got to be on the table.”

Some of Rooker’s colleagues, however, do not share his view. A majority of the newly configured Board of Supervisors, which includes two new Republicans, has indicated a preference to keep the tax rate at 74 cents, which would effectively lower taxes for citizens due to the drop in the average assessed value of county homes.

“I’m not in favor of raising taxes at all,” says Boyd, who is running to unseat Tom Perriello in the 5th Congressional District. “In this economy, we have a lot of constituents who are hurting, it’s not just the county [government] feeling the pain. I’m much more in favor of getting our spending under control to make sure we’re operating as efficiently as possible.”

This tension between adequately funding education and setting a politically palatable tax rate is not unique to Albemarle County. According to Rooker, it will only get more acute, in many localities, in the coming years, and hard, politically inconvenient choices will need to be made.

“What we’re seeing right now, in a way we haven’t seen in the last 50 years,” he says, “is the biggest tension between services and taxes at federal, state and local levels that we have ever seen—and I don’t see it getting better any time soon. You have an exploding federal deficit, you’re seeing a huge chunk of expenditures going out to medical expenditures and those programs are going to continue to grow and take more revenues. That’s going to leave fewer revenues for other programs and unless you raise taxes, you’re going to see a huge squeeze going on in the not so distant future. And voters want to believe politicians who say, ‘I will enhance your services and lower your taxes.’ I think they will see in the coming years that hard choices need to be made.”

Aside from the politically volatile issue of taxation, another, more apolitical factor is at the heart of the clash engendered by Bell’s proposal. Under the state’s constitution, all municipalities in Virginia categorized as cities are “independent cities” and are, therefore, not politically part of a county, even if they might be entirely surrounded by one, as is the case with Charlottesville and Albemarle. Norris calls it a “thoroughly dysfunctional system of local government” that creates an “artificial divide” between cities and counties.

“In the 49 other states, Charlottesville would be a city within Albemarle County, it would be drawing from the tax base of Albemarle County and sharing its services. You wouldn’t have two separate parks and recreation, two separate police, two separate public works and so on. That ultimately needs to be changed, but it’s unlikely to happen in our lifetime.”

Footnote or start of real progress?

The tension between raising the tax rate and providing services will worsen in years to come, says County Supervisor Dennis Rooker. “Voters want to believe politicians who say, ‘I will enhance your services and lower your taxes.’ I think they will see in the coming years that hard choices need to be made,” he says.

A perusal of the actual language agreed upon by the negotiators of the revenue sharing agreement points to a fluid approach to balancing county versus city needs.

The agreement notes that it is “an equitable solution, which permits both jurisdictions to share fairly in the property tax revenues created by future economic growth in the community, regardless of whether that growth occurs in the city or the county.”

The answer to what is fair varies with who you ask, especially during trying economic times, in which localities are attempting to juggle the need for services with an agreeable tax rate.

Bell’s proposal, whether it passes or not, has sparked conversation between the city and county. At the moment, there’s a sense of local officials pushed to one extreme or the other.

Toscano expresses concern about the lasting impact this posturing will have on city-county relations.

“You are seeing the beginning of a major conflict that will potentially undo much of the regional cooperation that we’ve seen over the last 30 years,” he tells C-VILLE.

Delegate Rob Bell is willing to accept the strain that his confrontational approach is having on city-county relations. “These are not two people we’re talking about,” he says. “It’s a business relationship.”

In an attempt to steer the conversation productively, Toscano is mediating a meeting April 24 with members of both school boards, the City Council and the Board of Supervisors. He recently sent a letter to all local officials urging them to air their arguments at one table, and they have agreed to the idea.

According to Toscano, “I think folks have said, ‘Let’s take a step back, take a deep breath and see if we can build on what we’ve done in the past so we can do more in the future.’”

Even with a firm time now set for a city-county discussion, Toscano acknowledged that it is going to take more than one meeting to spur progress. “We’re beginning a dialogue,” he said “and there’s going to be lots of arenas where this dialogue is going to occur. Some of it will be in public, some of it will be in private, some of it will be in business circles.”

The lingering question, however, concerns Bell’s proposal and how it will affect the potential for a kumbaya moment. The April 24 meeting date falls after the General Assembly adjourns, meaning a decision will already have been made about Bell’s amendment.

“If the amendment were to pass, I can’t predict what the city folks would do,” Toscano said. “If it were to fail, I’m not sure what the county folks would do. The amendment has created a lot of division in this community, and I represent both jurisdictions, so I can facilitate a process of cooperation, but I don’t have a vote on any of these boards. Ultimately, it’s up to them.”

Will the $2.6 million debate be remembered as another flare-up in city-county relations? Or as a catalyst for productive conversation as to how both localities can save money between its two school divisions? Stay tuned.

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